Here’s How Businesses Can Save Money on Personal Property Taxes

Amid the sprint to finish 2017 business tax returns, companies with significant fixed assets such as machinery should devote time for a thorough review that can save money on future personal property taxes.

In most states, 2018 personal property tax returns are due soon. In Georgia, for example, returns are due April 1. Those returns form the basis for assessment notices and tax bills that are sent later in the year.

Extra diligence and good record-keeping now can yield significant savings on the next personal property tax bill.

This is especially important for capital-intensive companies with large amounts of fixed assets, where expensive machinery such as forklifts or production equipment can add to a significant amount of tax.

Personal property refers to tangible property a business owns that is not considered real property. Depending on the jurisdiction, it can be administered at the state or local level.

Key Steps to Follow

Following these strategies will help save money on personal property tax:

Get organized. Develop an internal methodology or checklist for accounting or finance staff to inventory fixed assets. Update it regularly, perhaps when closing the books each month or at the end of the quarter.

Clean up fixed asset list. Maybe a machine was sold last year yet still appears on the company’s fixed asset list. If it remains in the detailed records it will likely be reported on the property tax return, and the company will pay tax on something it no longer owns. Clean up those mistakes to set a more accurate baseline for the coming year.

Know what’s not reportable. Software is often considered an intangible asset and thus not taxed as tangible personal property. And many states charge a separate ad valorem tax on automobiles, so reporting them on the personal property tax return would lead to assets being taxed twice.

Verify asset values. A new piece of equipment may be broken, or isn’t working the way it was supposed to. If the asset’s fair market value is lower than the depreciated value computed on the property tax return, it may be appropriate to reduce the value for reporting purposes.

Use the Freeport exemption. Georgia and many other jurisdictions allow up to a 100 percent exemption on inventory for manufacturers, while wholesale and distribution companies receive an exemption based on the percent of sales they ship out of state. You must file for this Freeport exemption every year, otherwise your inventory may be taxed.

Understand local jurisdiction. Companies with multiple manufacturing locations or inventory/warehouse locations probably need to file returns in each of those jurisdictions. Deadlines for tax filing vary by state and county, while Freeport exemptions may have their own filing deadlines.

Create a plan for asset disposals. Most jurisdictions use Jan. 1 for the assessment date, so if you have excess or unused equipment or other personal property, have a consistent plan to sell or dispose of it before that date.

Appeal when appropriate. Don’t tuck those assessment notices in a drawer and assume they’re accurate. Review them closely, and reconcile them against the return you filed. If there’s an error, appeal within the allowed window.

Summary: Personal Property Taxes

Save money on personal property tax with a well-planned strategy that begins with regular inventories of fixed assets.

Verify asset values, take advantage of Freeport exemptions and pay close attention to different deadlines across jurisdictions. Carefully review assessment notices that will be mailed in late spring or early summer, and appeal if you spot an error.

Following these steps helps ensure that you don’t overpay on personal property taxes.

About the Author

With over 19 years of experience, Kerry is the lead tax partner in the Manufacturing & Distribution group of Aprio. He creates value for the corporations, partnerships and individuals he serves by understanding clients’ business operations and devising strategies to achieve long-term success. This includes not only saving tax dollars, but also helping clients through an exit or business transition. He has consulted on a significant number of M&A transactions during his career and represents clients that are both family-owned and private equity-backed. In addition to extensive tax compliance and planning experience, Kerry has substantial experience in the areas of multi-state taxation and advising both in-bound and out-bound international companies. This includes consulting on nexus issues, sales and use tax matters, and property taxes.

To reach Kerry, call (770) 353-5355

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Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.